The rupee gained 12 paise to 81.75 against the US dollar in early trade on Wednesday tracking the weakness of the American currency in the overseas market.
Forex traders said significant foreign fund inflows and crude oil prices below $80 a barrel also supported the local unit.
At the interbank foreign exchange, the domestic unit opened at 81.80 against the dollar and then climbed to 81.75, registering a rise of 12 paise over its previous close.
On Tuesday, the rupee closed at 81.87 against the US currency.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.24 per cent to 101.71.
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Brent crude futures, the global oil benchmark, advanced 0.04 per cent to $75.35 per barrel.
In the domestic equity market, the 30-share BSE Sensex declined 293.34 points or 0.48 per cent to 61,061.37. The broader NSE Nifty fell 86.95 points or 0.48 per cent to 18,060.70.
Foreign Institutional Investors (FIIs) were net buyers in the capital market on Tuesday as they purchased shares worth ₹1,997.35 crore, according to exchange data.
Forex traders said investors are waiting for cues from the US Federal Reserve's rate decision.
"On the global front, US stocks tumbled as traders feared a spiral effect in the regional banking sector returning, ahead of the Federal Reserve's rate decision.
"The monetary policy kicked off on Tuesday, and is likely to announce a widely expected 25 bps rate hike on Wednesday. It will be interesting to see whether the Fed is interested in stretching out the rate hike process beyond May or not," CR Forex Advisors MD Amit Pabari said.